EME Macro/Strategy: Shock therapy to curb inflation, but test institutions and keep FX pressure high

Over the last few weeks, the sharp hawkish message of the Federal Reserve, and the worsening of the tensions between the EU/US and Russia, have sharply escalated the risk that we are heading for a global downturn of the severity of the 2008 crisis, and the complexity of the 2020 pandemic. The data available show that, in September, the economic slowdown that was beginning to become apparent in August has accelerated and has spread to all sectors. The energy crisis is forcing all the EU member states to save on energy and is beginning to bring congestion to the production chains. Thus, we now expect to see an increase in unemployment in the coming months. Global trade is likely to suffer materially from the synchronised monetary tightening, exacerbated by the Fed taking the policy rate into highly-restrictive territory within the next few months.